11/15/2006 @ 3:00PM

The Tower That Fell

Tower Records, now a bag of fast-depleting, fast-selling assets, symbolizes for many the bankruptcy of bricks and mortar music retailing. EMI Music head Alain Levy offers no silver lining, declaring that “the CD as it is right now is dead.”

Sure, selling music is much more complicated in the era of downloading, online buying and loss-leading conglomerate merchandising. Yet booksellers meet similar challenges:
Borders Group
and Barnes & Noble do well, so why not Tower? In fairness, Tower did respond to the evolving market: As recently as 2000, its Web site was ranked No. 1 for online music sales.

Tower’s demise has huge implications beyond the music business. Multimedia company
Navarre
has announced a 3 cents-per-share charge against earnings due to Tower’s bankruptcy. Independent music producers and distributors are scrambling: Tower was the last chain striving to offer an in-store “deep catalog” selection–stocking titles far beyond the Top 40, with (at its best) a vast array of titles in such niche genres as classical and jazz, but also in gospel, world, blues and country.

Yet in straddling the old and new worlds of retailing, Tower reneged on that commitment in all but the biggest stores–maintaining shell operations in stores they should have shed years ago, foolishly trying to hang on to a nationwide retail chain.

With the music buying experience evolving by the moment, old-fashioned record stores with leases, staff and high inventory costs (tying up millions in capital), needed a drastic overhaul. Tower’s management, mistaking “vision” for acumen, slept through the revolution, making gestures toward the new music retailing landscape but too little, too late.

Tower can’t compete on price for specific CDs, since any Web site will undersell them–as did TowerRecords.com. Bulk sales don’t work, either–the most popular titles are sold mainly in “loss leading” outlets like
Wal-Mart
. That left Tower with the have-it-all-in-stock business model, the go-to source for hard-nosed music enthusiasts. But taking that model seriously demanded aggressively increased inventories and tight working relations with distributors, rather than dropping every CD that did not sell once in 6 months. Equally important are an inviting shopping environment to bring customers in and bring them back and competent, reliable staff.

With a management that would not have known Peter Drucker from Curious George, it was no surprise that staff were treated as a burden, not a resource. For all the lip-service paid to the alleged importance of employees, Tower hyped the “fun factor” to draw in job applicants but offered next to nothing in pay and benefits. The result was unacceptable staff turnover and an unlikely mix of dedicated aficionados and colorful ineptitude that set Tower employees only marginally above the Kinko’s crew. The ones who were savvy and trainable left as soon as they could. Any customer who has to spell “Mozart” or “Coltrane” to the clerk supposedly helping locate a particular album will quickly lose an appreciation for personal customer service.

What were Tower’s options? Maybe none, given the tight cash flow constraints imposed by its 2004 bankruptcy, which launched a perversely destructive cycle of bulk buying (the only way to get big discounts from big suppliers)–that bulk product being shipped right back after it predictably didn’t sell. With often-superfluous new product flowing in, and slow-moving items being pulled too soon, the only profit went to the shipping company, moving tens of thousands of CDs to and from Tower outlets.

Perhaps the dynamic of a corporate hierarchy under stress–self-preservation over problem solving, connections outweighing merit, fresh thinking discouraged–made a serious recovery effort impossible. That would have demanded closing the money-losing smaller stores, investing heavily in the two dozen or so profitable outlets in big markets and covering key genres in overwhelming depth: adult contemporary, jazz, blues, classical, along with hand-picked top quality pop/rock titles in an attractive environment. (Espresso bar? Quality audio? Use a little imagination.) In other words, create a market, don’t just put stuff on the shelves and open the doors.

The social experience of buying music still attracts a key demographic with cash to burn, but it has to milk the “live” advantage for all it’s worth to make money. May some savvy entrepreneur pick up where Tower fell.

Jens F. Laurson is editor-in-chief of the International Affairs Forum and music critic for the Washington-based online journal of culture, Ionarts. George A. Pieler is senior fellow with the Institute for Policy Innovation.